Cango, Inc. Q2 FY2024 earnings call

• Automotive market was sluggish in Q2 2024 with vehicle production and sales declining year-on-year. New energy vehicle growth wasn't enough to reverse the downward trend.
• Implemented strict cost control and risk management, with total outstanding loan balance at ~RMB6.2 billion as of June 30, 2024, and credit risk exposure low.
• Focused on enhancing Cango U-car: consistent high-quality vehicle supply, optimized dealer service, improved cross-regional deliveries; Cango U-car app had over 130,000 page views, 266 vehicle transactions, 124 auctions, and over 260,000 vehicle listings.
• Established strategic partnerships with major used car markets for real-time vehicle listing synchronization.
• Launched AutoCango.com in March 2024, attracting over 180,000 visits, 20,000+ registered users in 207 countries/regions, and over 85,000 used car SKUs.

In the second quarter of 2024, total revenue was RMB45.1 million compared to RMB675.4 million in the same period of 2023. Guarantee income was RMB20.9 million. Cost of revenue decreased to RMB26.5 million from RMB615.8 million in 2023, with cost of revenue as a percentage of total revenues at 58.8% vs. 91.2% in 2023. Sales and marketing expenses were RMB4 million vs. RMB12.2 million in 2023. General and administrative expenses were RMB39.2 million vs. RMB36.8 million in 2023. Research and development expenses were RMB1.7 million vs. RMB7.7 million in 2023. Net gain on contingent risk assurance liability was RMB10.3 million vs. a net loss of RMB1.6 million in 2023. Net recovery on provision for credit losses was RMB33 million vs. a net loss of RMB10.2 million in 2023. Income from operations was RMB47 million vs. a loss of $8.9 million in 2023. Net income was RMB86 million, and non-GAAP adjusted net income was RMB90.7 million. Cash and cash equivalents were RMB949.5 million as of June 30, 2024, down from RMB1.2 billion on March 31, 2024. Short-term investments were RMB2.7 billion as of June 30, 2024, up from RMB2.3 billion on March 31, 2024.

• Predicts Q3 2024 total revenue to be between RMB20 million and RMB25 million, reflecting preliminary views on market and operational conditions subject to change.

• Automotive market remains sluggish with year-on-year declines in vehicle production, sales, and passenger vehicle sales.
• Cross-border used car transactions face challenges such as high logistics costs (transportation, insurance, warehousing), varying regulations and standards across countries, and long transaction cycles due to vehicle assessment, buyer selection, pricing negotiations, and legal/financial reviews.

Q: How's your strategic partnership with major used car markets help improve your market position? And what about the contribution by these partnerships to your financial performance?

A: Collaborating with major used car markets expands supply channels, diversifies vehicle offerings, leverages geographic coverage and market penetration, increases transaction volume, creates economies of scale, reduces unit costs, and strengthens bargaining power, improving profit margins.

Q: What about the challenges that your company faces in promoting the used car cross-border transactions?

A: Challenges include high logistics costs, varying regulations and standards across countries, and long transaction cycles due to vehicle assessment, buyer selection, pricing negotiations, and legal/financial reviews.

Q: The company has decreased your revenue guidance. So will you continue to do that in the future? And how will the management balance your long-term strategy against your short-term performance pressure?

A: On guidance, will continue to evaluate business development strategically, reallocate resources, optimize, and drive cost reduction and efficiency improvements. For balancing long-term strategy and short-term performance, adopted integrated strategic planning, aligned short-term goals with long-term vision, focused on enhancing execution, efficiency, cost control, and revenue growth in short term, and broke down goals into phases with flexible adjustments and strategic flexibility to adapt to changes.